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Dubai is a very different place from any other in the Persian Gulf.
Its economy isn’t based on oil, natural gas or any other raw material, but instead,
mainly on tourism, transport, trade and finance.
But despite not being rich in natural resources, in the last four decades, Dubai became one
of the most prosperous cities in history.
Since the first towers began to emerge in the desert, this city’s growth has been
nonstop.
The tallest building in the world, the largest shopping mall, the largest airport, the most
luxurious hotel.
You can find everything here.
And, well, we could say that this city is made by and for money.
Everything, absolutely everything in this enclave is shaped by the money flowing in-to
and out-of it.
However, 2018 hasn’t exactly been this emirate’s happiest year.
In the last 12 months, the Dubai stock market has plummeted by almost 25%, new business
licenses have decreased, and for the first time ever, employment has also fallen.
Today more and more analysts are wondering whether Dubai is about to undergo a huge crisis.
And this is, precisely, the main question.
Will Dubai be losing its shine?
Listen up.
(SIGNS AND SHADOWS)
While much of the Arab world is facing a great deal of chaos, economic crises, political
crises, violence...
Dubai is very busy developing 3D printers, theme parks, air taxi services and even working
to send a probe to Mars within just 3 years.
But, as I was saying, 2018 hasn’t been a very good year.
Look, even though more than 90% of Dubai’s population is foreign, schools for expatriates
are closing or losing students.
Moving companies show one clear trend: more people are leaving than arriving.
And although the construction pace is still in full swing, it’s becoming increasingly
clear that many of these new buildings are half empty
Apartments, offices, hotels, shopping centers...
Obtaining official statistics isn’t easy, but what happens when there’s more supply
than demand?
Prices drop, right?
Well that’s precisely what’s happening.
And not only that, Emaar Properties’ stocks – the company that built the Burj Khalifa
– and those of other large developers listed on the Dubai stock exchange have suffered
a collapse of almost 40% in the last year.
Want more?
Well, DXB Entertainments, the company that owns most of the theme parks that have opened
in Dubai in recent years, such as Legoland Dubai, MotionGate, and Bollywood Park, is
negotiating with banks to restructure more than one billion dollars in debt, simply because
the number of visitors is much lower than expected.
You can see that it isn’t exactly time to celebrate.
Now the question we can ask ourselves here, on VisualPolitik is “what the hell is happening”?
Why is Dubai facing this possible crisis?
Is this the end of the emirate that has broken every Middle Eastern mold?
Let's see.
(THE STORM)
Dubai is facing a completely new scenario.
In this case, the origin of its problem may lie far beyond its rulers’ competence.
Allow me to explain:
Dubai is perhaps the most famous emirate in the United Arab Emirates, but it’s Abu Dhabi
that has the oil, money and power.
In fact, even though Sheikh Mohammed bin Rashid governs Dubai, it’s this man here, Muhammad
bin Zayed, the crown prince of Abu Dhabi, who de facto rules all the United Arab Emirates.
Well, the key to Dubai’s huge success was becoming something like the Switzerland of
the Middle East: the freest space, with the most legal security, and the one most open
to the rest of the planet.
And, of course, low taxes.
However, now some of these things are being questioned.
In the last two to three years, the United Arab Emirates government has adopted a very
active foreign policy.
Prince Mohammad bin Zayed has completely aligned himself with the Saudi Crown Prince Mohammed
bin Salman, especially on two fronts: Qatar and Iran.
Check this out.
On the one hand both countries have led the blockade against Qatar, a country that had
very close ties with Dubai.
In fact many international companies settled in Dubai and their executives traveled to
and from Doha;
And Jebel Ali, Dubai’s great port, was also Qatar’s most important supply center.
Now that’s all over.
With the blockade, the UAE ordered all Qatari citizens to leave the country, most flights
were suspended, and freight traffic was interrupted.
Now Qatar is directly provisioned by or through Oman, but no longer through Jebel Ali.
With the blockade Dubai has lost a very important commercial partner.
In addition to all this, many companies and many investors have noticed that legal security
and maneuverability weren’t as strong as they previously thought, because, as you can
see, Dubai ultimately depends on decisions made in Abu Dhabi.
But that’s not all.
Dubai also had very important relations with Iran.
In fact, thanks to its proximity, Dubai became something of an escape route, a place for
many Iranian leaders and entrepreneurs to stay for a few days, have fun and spend some
money.
And not only that, every year their commercial business transactions with Iran surpassed
20 billion dollars.
But now, because of US sanctions and the growing diplomatic conflict between Riyadh and Tehran,
this trade is shrinking by leaps and bounds.
The ships that used to send goods every week now go once a month.
In other words, in just over a year, Dubai has lost two of its largest trading partners,
due to decisions made in Abu Dhabi.
And, do you think that’s all?
Well...
It’s definitely not.
Just as Dubai became a sort of playground and second safe zone for Iranians, the same
thing happened with Saudi citizens and businessmen.
Of course!
Given all the restrictions that Saudi Arabia has, for the Saudis, Dubai is an oasis of
freedom and safety.
Well, when the Saudi prince, Mohammed Bin Salman unleashed his war against “corruption”
- or a move to consolidate his power - and locked up or kidnapped dozens of Saudi businessmen
and senior officials, the Arab Emirates Central Bank demanded all banks operating in the country
to give Riyadh all the information they had on the detainees’ accounts.
And they delivered all this information even when they hadn’t been charged; information
that, of course, Riyadh used to get money from all the businessmen who had to buy their
freedom with their checkbooks.
That way, the Saudi businessmen who thought that Dubai was the true Switzerland of the
Middle East realized that this wasn’t quite so.
Yes, in Dubai there’s legal security and your savings are safe, but not the information
with which the autocratic Saudi government can extort you.
Do you see where the problem is?
Well, due to these reasons, and others, the Dubai financial industry is also suffering.
But no, we haven’t yet reached the end of the list, the headaches don’t stop here.
The dropping oil prices in recent years have affected the purchasing power of many of the
people who spend their money in Dubai.
A lower oil price means less income and that, as we’ve seen here on VisualPolitik, has
meant that some countries like Saudi Arabia have had to make many, many cuts.
And, finally, there’s another factor that depends on Dubai itself: in a certain way,
the city runs the risk of becoming a victim of its own success.
Yes, you heard that right.
Thanks to Dubai’s huge success, its prices have skyrocketed, especially real estate prices.
And Dubai has very low taxes, but the state gets many resources through building licenses...
which hasn’t helped either.
If to all of this, we add the fact that many Middle Eastern countries, to reduce their
dependence on oil, have launched plans to copy this city by giving many advantages to
their investors... the result is that Dubai has lost its appeal to international companies
in recent years.
Anyway, as you now see, these are the roots of the problem:
Abu Dhabi Qatar
Iran And the cost of its own success has decreased
this emirate city’s attractive oasis status.
But what many of you may be wondering is, what now?
Listen up.
(PERSPECTIVES)
Even though its economy is expected to grow by just over 2% in 2019, as you can see, Dubai
isn’t going through the best of times.
But, just a second, this doesn’t mean everything is lost, not at all.
In spite of everything, this city-emirate continues to be an oasis in the desert and
its government seems to have a clear idea of the keys to its success.
Therefore, what Sheikh Mohammed bin Rashid’s government is doing now, is trying to make
Dubai's economy even more competitive with its neighbors: to do so, they are making it
easier to obtain a VISA, they’re ensuring that expatriates who lose their jobs have
an easier time staying, and they are decreasing the obstacles of foreign business owners outside
the special economic zones.
In other words, they want to connect Dubai even more to the rest of the world.
In fact, local authorities have high hopes for the arrival of Chinese investors.
(“This is a market cycle that we have to accept.
The government is doing what it did in past slumps, sitting down with business to figure
out solutions".
Fahad Al Gergawi, head of investment agency Dubai FDI.)
("When the upturn does arrive, Dubai’s companies will emerge leaner and more competitive”.
Khatija Haque, head of regional research at local lender Emirates NBD)
Folks, this is what’s happening in this city-state that has had such a positive influence
on the entire Middle East.
Yes, in Dubai, a lot of unfortunate things may be reported, but opening up to the world
has been a breath of fresh air for one of the most hostile areas on the planet in terms
of human rights.
In Dubai, not only can you drink alcohol, eat pork, and pray at a Catholic church, now
you can even go to a Synagogue and eat Kosher food.
Yes, you heard that right.
( “As the Gulf Warms Up to Israel, a Synagogue Grows in Dubai”.
Bloomberg)
Anyway, only the future will be able to tell if this city-state’s frenetic growth pace
will continue or if instead Dubai is doomed to suffer a huge crisis and lose its shine.
So far, the party continues:
(A Dubai company will build the largest sports shopping center in the world, The Gulf Post)
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